What Can You Claim if Self-Employed?

by Tom Chmielewski, Demand Media

The self-employed need to keep track of all business expenses for potential deductions.

Michael Blann/Digital Vision/Getty Images

If you are self-employed, you can claim expenses directly related to your business. The Internal Revenue Service does not require you to itemize on your personal return 1040 to claim those expenses as all self-employment expenses and income are reported on Schedule C, Profit and Loss from Business. Any profit or loss is carried over to your form 1040 and added or subtracted to any other earned income.

Qualified Business Expense

The IRS qualifies a business expense as both “ordinary and necessary” to the business you’re in. But you have leeway in what you can consider necessary. The IRS in its instructions makes a point that necessary does not have to be “indispensable.” An expense qualifies as necessary if it is “helpful and appropriate” for the business you conduct. These expenses include advertising, educational fees, bank fees, subscriptions to trade or professional publications, supplies and materials.

Vehicle Expenses

You normally have two choices when claiming credit for business use of a vehicle. You can either deduct the actual expenses of operating a car or truck, or take the standard mileage rate set annually by the IRS. You must report actual expenses, however, if you own a taxicab or otherwise use your vehicle for hire, or if your business runs a fleet of five or more vehicles. If you lease a vehicle, while you can choose either method, you must use only one method for the entire length of the lease. For the standard mileage rate, multiply the number of business miles by the rate published on the IRS website. You can also add tolls and parking fees. For actual expenses, report the business portion of expenses for gasoline, oil, repairs, insurance, tires, license plates and other vehicle expenses. You can also deduct depreciation of your vehicle.

Home Office

Expenses connected with a home office are deductible if you use your office exclusively for business and it is your principal place of business. While the office has to be an identifiable space, it does not have to be a separate room. You do not need to meet the exclusive use test, however, if you run a daycare facility. Deduct that portion of mortgage interest, rent, real estate taxes and insurance attributable to your business space by determining the percentage of your home's square feet taken up by your office. Also deduct expenses related solely to your business use of the space such as business phone, supplies and equipment.

Health insurance and Self-Employment Tax

If your only income is through self-employment, you can deduct the entire amount of premiums you pay for medical, dental and qualified long-term care insurance. If some of your income did come from wages, you need to fill out Worksheet 6-A of Schedule C to determine the actual deduction. You cannot, however, deduct payments for any month in which you were eligible for an employer subsidized health plan. While you need to pay self-employment tax on any profit you make to cover Medicare and Social Security, you can deduct half of your self-employment tax from your gross income on Form 1040 to reduce your income tax.

About the Author

Tom Chmielewski is a longtime journalist with experience in newspapers, magazines, books, e-books and the Internet. With his company TEC Publishing, he has published magazines and an award-winning multimedia e-book, "Celebration at the Sarayi." Chmielewski's design skills include expertise in Adobe Creative Suite's InDesign and Photoshop. He holds a Bachelor of Arts in English from Western Michigan University.

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